[CTC] In TPP, Canada Seeks Access To Certain Sub-federal Procurement Deals

[Arthur Stamoulis]

/Kevin P. Gallagher published the following op-ed in the /Financial 
Times/today based on the recent Pardee Center report 
<http://www.ase.tufts.edu/gdae/policy_research/CapAcctReg.html> from the 
/Task Force on Regulating Global Capital Flows for Long-Run Development, 
which he co-chairs.//

*Don’t trade away financial stability in Trans-Pacific Partnership*

/By Kevin P. Gallagher
Financial Times, //March 6, 2013/

Negotiators will meet in Singapore this week for yet another round of 
talks on a Trans-Pacific Partnership – it is the 16th time in just a few 
years. A TPP would bring together key Pacific-rim countries into a 
trading bloc that the US hopes would counter China’s growing influence 
in the region.

Among other sticking points, talks remain stalled because the US insists 
that its TPP trading partners dismantle regulations for cross-border 
finance. Many TPP nations will have nothing of it, and for good reason. 
The US stance stands on the wrong side of country experience, economic 
theory and guidelines issued by the International Monetary Fund.

TPP nations such as Chile and Malaysia successfully regulated 
cross-border finance to prevent and mitigate severe financial crises in 
those countries in the 1990s. In the wake of 2008, there has been a 
global rethink regarding the extent to which cross-border financial 
flows should be regulated. Many nations such as Brazil and South Korea 
have built on the example of Chile and Malaysia and reregulated cross 
border finance through taxes on short-term debt and foreign exchange 
derivative regulations. After 2008, emerging markets and developing 
nations want as many tools as possible to prevent and mitigate crises.

New research in economic theory justifies this. Anton Korinek and 
Olivier Jeanne 
<http://blogs.ft.com/economistsforum/2012/01/capital-controls-are-not-beggar-thy-neighbour/> 
have demonstrated how externalities are generated by cross border 
financial flows because investors and borrowers do not know (or ignore) 
what the effects of their financial decisions will be in terms of 
financial stability in a particular nation. Foreign investors may well 
tip a nation into financial difficulties, and even a crisis.

The authors argue that regulating cross border finance will correct for 
the market failure and make markets work more efficiently.

Such thinking has in part triggered an about face at the IMF on capital 
flows. Last December, the IMF endorsed an “institutional view” 
<http://www.imf.org/external/pp/longres.aspx?id=4720> on capital account 
liberalization and the management of capital flows. The IMF now 
recognises that capital flows bring risk, particularly in the form of 
capital inflow surges and sudden stops, which can cause a great deal of 
financial instability. Under such conditions, the IMF will now recommend 
the use of cross-border financial regulations to avoid such instability.

I led a task force 
<http://www.bu.edu/pardee/2012/03/02/task-force-on-regulating-global-capital-flows/> 
that held a compatibility review examining the extent to which the 
regulation of cross-border finance was compatible with many of the trade 
and investment treaties across the globe. It consisted of former and 
current Central Bank officials, IMF and WTO staff, members of the 
Chinese Academy of Social Sciences, as well as scholars and members of 
civil society. In a report <http://www.bu.edu/pardee/car-task-force/> 
published this week, we find that US trade and investment treaties were 
the most incompatible with new thinking and policy on regulating global 
finance.

Not only do US treaties mandate that all forms of finance move across 
borders freely and without delay, but deals such as the TPP would allow 
private investors to directly file claims against governments that 
regulate them, as opposed to a WTO-like system where nation states (ie 
the regulators) decide whether claims are brought. Therefore, under 
investor-state dispute settlement a few financial firms would have the 
power to externalise the costs of financial instability to the broader 
public, while profiting from awards in private tribunals.

Such provisions fly in the face of recommendations on investment from a 
group of more than 250 US and globally renowned economists 
<http://www.ase.tufts.edu/gdae/policy_research/CapCtrlsLetter.html>. The 
2012 IMF decision 
<http://www.iisd.org/itn/2013/01/14/the-imfs-new-transfers-policy-and-the-trading-system/> 
echoes these sentiments when it says “these agreements in many cases do 
not provide appropriate safeguards or proper sequencing of 
liberalization, and could thus benefit from reform to include these 
protections”.

Members of our task force recommend that emerging market and developing 
countries refrain from taking on new trade and investment commitments 
unless they properly safeguard for the use of cross-border financial 
regulations. Leaked text 
<http://www.huffingtonpost.com/2012/06/13/obama-trade-document-leak_n_1592593.html> 
of the TPP reveals that Chile and other nations have proposed language 
that could provide such safeguards. The US should work with those 
nations to devise an approach that gives all nations the tools they need 
to prevent and mitigate financial crises.

Copyright /Financial Times 
<http://blogs.ft.com/economistsforum/2013/03/dont-trade-away-financial-stability-in-trans-pacific-partnership/?>/ 
2013 (first time visitors to the FT page will have to sign in but 
opinion articles at the FT are free)

/Kevin P. Gallagher is researcher at the Global Development and 
Environment Institute (GDAE) at Tufts University and a professor of 
International Relations at Boston University. He is co-chair of the Task 
Force on Regulating Global Capital Flows for Long-Run Development and 
co-editor of the task force’s latest report, “Capital Account 
Regulations and the Trading System: A Compatibility Review” 
<http://www.ase.tufts.edu/gdae/policy_research/CapAcctReg.html>./

Read more on GDAE’s work on Capital Flows, Trade and Investment 
Treaties, and Development 
<http://www.ase.tufts.edu/gdae/policy_research/CapitalControls.html>
Read more on GDAE’s Globalization and Sustainable Development Program 
<http://www.ase.tufts.edu/gdae/policy_research/globalization.html>

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